by John Hughes
I almost forgot, but here are a few more interesting IFRS-related examples from third quarter MD&A (my previous posts on this topic were here and here). First of all, Pengrowth Energy Trust provides another illustration of distinguishing between reclassifications and recognition/measurement differences:
Telus Corporation perhaps sets out the numerical impact in greater detail than any other entity so far, providing summarized journal entries for each significant item. Here’s an example of how that looks:
Telus also provides this so-far unusual but very attractive summary of how IFRS impacts on other key measures and metrics:
Here’s another possible format for presenting the quantified information, from Cameco Corporation:
On the first item there, it could be easy to overlook that impairment losses previously recognized under Canadian GAAP will sometimes need to be partly reversed on adopting IFRS. In Cameco’s words: ”IFRS requires the reversal of any previously recorded impairment losses where circumstances have changed such that the impairments have been reduced. We reviewed our previously recorded impairment losses and reversed a portion of the charges relating to certain of our in situ recovery mine assets located in the United States.”
Cameco also illustrates another trap for the unwary – that depending on their terms, convertible debt and other such instruments might be analyzed under IFRS as hybrid instruments containing an embedded derivative, rather than as debt and equity components:
Under Canadian GAAP, our convertible debentures, issued in 2003 and redeemed in 2008, were treated as a compound instrument with a debt and equity component. We measured the debt component at amortized cost using the effective interest rate method, while the equity component was measured at the issue date using the residual method with no future changes in value recognized. Under IFRS, we have concluded that these convertible debentures cannot be accounted for as compound instruments under IAS 32. The accounting for the debt component is unchanged, but we have concluded that the conversion feature is to be accounted for as a derivative under IFRS. A derivative is required to be measured at fair value at each reporting date with changes in value being recorded in earnings. For purposes of our IFRS transition, we have measured the fair value of the conversion feature as at the redemption date and recorded an increase in share capital offset by a corresponding decrease in retained earnings.”
Finning International also provided some comprehensive quantification this quarter, showing each significant item in a separate column:
Manulife Financial isn’t yet providing this kind of disclosure, but among so many blandly factual accounting policy descriptions, it stands out for an unusually eloquent commentary on the current insurance project (subsequent to this, Manulife and others reportedly met with IASB Chair David Tweedie to express their concerns directly):
Manulife’s IFRS-related headaches don’t end there: “The testing for impairment of goodwill at the cash generating unit level under IFRS, a more granular level than Canadian GAAP and U.S. GAAP, could result in more frequent impairment charges prospectively. As a result of a more granular level of testing under IFRS, and in light of the continuing deterioration in the overall U.S. economic environment, including persistent low interest rates, and recent decisions in Q3 2010 regarding the revised financial outlook for the U.S. insurance business as a result of the repositioning of that business, we expect to record a potential impairment charge of approximately $2.2 billion in excess of the impairment charge recorded under Canadian GAAP, attributable to our U.S. Life and U.S. Wealth operations. This charge will be split between our IFRS Opening Balance Sheet (through retained earnings) at January 1, 2010 and the third quarter 2010 comparative IFRS results based on the facts and circumstances that existed at the time of the IFRS Opening Balance Sheet and third quarter 2010, respectively.”
At the opposite end of the size spectrum, Commander Resources Ltd. isn’t yet providing quantified information about the impact of adopting IFRS. However, I found this summarized approach to the narrative disclosure quite appealing, and almost certainly more suitable for the needs of most shareholders (this is just an extract):
Well, that’s it for the third quarter. The year-end MD&A disclosures, coming just a few months before the initial IFRS filings, will certainly take all this to a different level again.
The opinions expressed are solely those of the author.